Some Questions About Takaful

A lot of people may not know much about Takaful, aside from it being a part of Islamic banking and that it is compliant with Syariah law.

So how does Takaful differ from conventional insurance and why is it Syariah compliant? Most importantly to the insurer, does its policy offer the same benefits of conventional insurance, or is it more beneficial?

President and CEO of Takaful Ikhlas Datuk Haji Syed Moheeb bin Syed Kamarulzaman talks to StarProperty.my about the concept of Takaful and how it differentiates from conventional insurance, as well as the value proposition of the company and its services for homebuyers or homeowners.

What are the benefits or differences of Takaful Ikhlas compared to conventional insurance?

A lot of people may not know much about Takaful, aside from it being a part of Islamic banking and that it is compliant with Syariah law.

So how does Takaful differ from conventional insurance and why is it Syariah compliant? Most importantly to the insurer, does its policy offer the same benefits of conventional insurance, or is it more beneficial?

President and CEO of Takaful Ikhlas Datuk Haji Syed Moheeb bin Syed Kamarulzaman talks to StarProperty.my about the concept of Takaful and how it differentiates from conventional insurance, as well as the value proposition of the company and its services for homebuyers or homeowners.

What are the benefits or differences of Takaful Ikhlas compared to conventional insurance?

Datuk Hj Syed Moheeb: The Takaful industry follows what the conventional industry does. By agreement, we have agreed not to innovate outside the tariff. We agreed to follow exactly what is in the tariff, we have agreed to play along the same rules, level playing fields.

To ensure consistency of practice and to facilitate proper growth of the industry, Bank Negara required all tariffs. So there is really no difference between conventional House Holders and a conventional House Owners, compared to what is being offered by the Takaful industry. No difference at all in the cover.

There are other types of differences in between conventional and Takaful. Conventional insurance is a contract of exchange. In Takaful, it is not a contract of exchange. You are actually putting the money into the pool with a “niat" (benevolent wish).

If anything unfortunate befalls any one of the participants, the Takaful operator use this money to assist them. So, you have the charitable, benevolent intention in that particular act. And you know that any charitable or any benevolent act will receive rewards in life hereafter.

Therefore even if there is a cross-subsidy, we still take up that risk. At the very least, the intention here is that one is donating to the pool.

What is the value proposition of Takaful Ikhlas for the public?

Datuk Hj Syed Moheeb: What makes us unique is our use of technology. Our distribution finds it very convenient working with us. To the buying public, we have a reputation of being prompt and fair in claims handling.

Takaful insurance is free from “riba”, “gharar” and “maisir”. Please explain these terms.

Datuk Hj Syed Moheeb: Conventional insurance is a contract of exchange of goods or service. In Takaful, in Syariah, when you want to exchange something, there must be a definite amount as well as a definite time for the exchange.

When you put your money into an insurance company, you don’t know when you’re going to get back something as an exchange. You don’t know whether you are going to get anything back, when you may get it back, and how much. There is a lot of uncertainty. And, as such, that uncertainty is what we call ‘gharar’: this leads to wagering. You don’t know whether you’re going to get your money or not.

It’s wagering where you are going to lose. So that contract is unfair and has the element of uncertainty. Wagering, and whichever kind of contract that is unfair, is prohibited in Islam.

Under Islamic contract law, you cannot and should not enter into a contract which is weak. So this contract is called “fasir”’. If you enter into a contract which is weak, you are entering into a contract whereby one party is going to be oppressed, and that is “Haram” (forbidden).

Therefore, entering into an insurance contract is “Haram”.

"Riba" is of course when you pay a premium to an insurance company, they will invest it in interest bearing instruments. Takaful companies are not invested nor are they kept in any "riba" arrangement.